ARK.] PEPPERS V. PENNSYLVANIA DOOR & SASH CO. 521
PEPPERS v. PENNSYLVANIA DOOR & SASH COMPANY. Opinion delivered June 21, 1926. 1. CONTINUANCE-L -ABSENCE OF PARTY.—A continuance was properly • denied upon a showing that defendant was an important witness, and was absent attending to important busi . n ess of an undisclosed character. 2. CONTINUANCE—FAILURE TO PRODUCE DOCUMENT.—Failure of plaintiff to ProdLice an original document pursuant to notice held not .a sufficient teason for postponing the trial when defendant's counsel knew that such document had not been produced, and a copy was available. ' CONTRACTS—WHAT LAW GOVERNS.—The law of . the State in which a contract is to be Performed governs in its construction and in the determination of the rights and liabilit , ies . of the parties. 4. CORPORATIONS—LIABILITY OF g rocKHOLDERS:—Under Const.. Cal. art. 12, .§ 3, as construed by the Supreme Court of that State, a stockholder is primarily liable for proportionate share of corporate liabilities, and a creditor need not pursue the corporation before suing a stockholder, notwithstanding the demand is for unhquidated damages for breach of a contract. PLEADING—ADMISSION BY FAILURE ,TO DENY.—Failure tki deny, allegations of the complaint is an admission of their truth. 6. EVIDENCE—CONTENTS OF STOCK Boox.—Testimony of the' v.ice president and active manager of a corporation as -to the number of shares therein owned by the president is competent as against contention that such fact is to be shown only by . the stock-book: 7. SALES—DAMAGES FOR BREACH.-1-In an action by a buyer for breach of a contract for the sale of lumber f. o. b. cars, the loading charges are proper element of damages. 8. SALES—DAMAGES FOR BREACH.—The cost of sUrf acing lumber in excess of the contract price is a proper element of damage for
522 PEPPERS V. PENNSYLVANIA DOOR & SASH CO. [171 breach of a sale contract, requiring the seller to surface lumber as directed. Appeal from Howard Circuit Court; B. .E. • Isbe Judge ; affirmed. J. G. Sain, for appellant. R. B. Ivory and W. P. Feazel, for appellee. SMITH, J. Appellee brought this suit in the How-ard Circnit Court against appellant, and for its cause of action alleged that, on the 16th day of April, 1921, the Pennsylvania Door & Sash Company, a Pennsylvania corporation, entered into a contract with the Peppers-Cotton Lumber Company, a California corporation engaged in the sawmill business; for the entire cut of lumber No. 2 shop and better, white and sugar pine, for the season . of 1921, estimated at 6,000,000 feet, and that the California corporation, hereinafter referred to as the lumber company, breached this contract by failing to deliver the lumber contracted to be delivered. That T. H. Peppers was the president and principal stockholder of the lumber company, and there was a prayer for damages against Peppers as a stockholder in the lumber company. ' There was a verdict and judgment for the plaintiff, and Peppers has appealed. • Although a citizen of 'California, Pepper4 was served with the summons while sojourning in this State, and he filed an answer .denying the material allegations of the complaint. . When the cause came on -for trial a motion for continuance was filed, and an exception was saved to the action of the cOnrt in overrnling this motion. The ground of the . motion was that Pepper's had left his home in Cal-ifornia on February 18, 1925, for the purpose of going to dhicago and New York and of returning to Nashville, where the case was pending, to be present at the trial, but that,it was impossible for him to be present, and that his presence was highly important to a proper presentation of his defense to the cause of action sued on. It was . not shown, however, wherein it was impossible for Peppers to • e present at the tri -al. There Was no ele-
ARK.] PEPPERS V. PENNSYLVANIA DOOR & SASH Co. 523 ment of surprise in-the case, and no unavoidable casualty of any kind was shown. So far as any showing was made, nothing appears except that Peppers had,import-. ant business, of an undisclosed ,character, to which he preferred to attend rather than the trial, and there :was therefore no error in overruling the motion for continuance. Trumbull v. Harris, 114 Ark. 493. The contract which it is alleged the lumber company breached was in writing, and contained specifications .as, to kind of lumber, dimensions, and prices, the ' t•rices being f. o. b. Macdoel, California, the place where 'the • mill was located. The lumber company entered upon the performance of the contraet, and made a partial delivery of the lumber contracted for, when it Ceased . to 'make deliveries under the contract, 'and later a receiver 'Was appointed by the court in California, who took over the assets and affairs of the lumber company. , There was served on counsel for plaintiff on Febru, ary 2, 1925, a written notice, to, produce the original ,of a contract entered into between J. S. Kent, the , receiver of the lumber company, and plaintiff, which was dated November 3, 1921. It does not appear from the notice what ihe provisions of the contract were nor the ,purpose for which it Was intended to be used, and its relevancy, and materiality do not therefore appear. The attorney upon whom the notice was served was called as a witness, and was , eiarained concerning the failure to produce. thp, original contract as required by the , notice. Prom the testimony of this witness it appears that the contract was executed in triplicate, one copy of which was , delivered to the plaintiff. This witness testified that he called upon the plaintiff company to produce the_contract, and he went through its papeys , looking for' it without finding it, and had not,notified counseFfor Peppers of his failure to locate it, for the reason that counsel for Peppers had stated that he would prove the contents of the 'contract if the original were not produced, and counsel for appel-lee consented that this be done.
524 PEPPERS V. PENNSYLVANIA 'DOOR & SASH CO. [171 If for any reason this contract was relevant and Material, there was no reason why the deposition of the receiver, who was known to have a copy, could not have been 'taken. Moreover, a foundation was laid for the introduction of secondary evidence to prove the contents of this writing, and no objection was made to this being done ; in fact, consent was given that this be done. The failure to produce the original of this instrument does not appear to have been sufficient reason for postponing the trial. Counsel, of course, knew the contract had not been produced, and he should therefore have taken the deposition of the receiver, or should lave offered testimony proving the contents of this instrument if, in fact, its contents were relevant and material. It was insisted below, and the insistence is renewed here, that it was error to permit plaintiff to proceed with the suit against Peppers as a stockholder in the lumber company before its claim was established and adjudicated in the State of California. In other words, it is insisted that, as it was not shown that the affairs of the lumber company had been settled, the suit against a stockholder was premature. • . The contract which forms the basis of the suii was to be'Performed in California, and thereforeThe laws of that State govern in its construction and in the determination of the rights and liabilities of the parties thereto. • Section 3 of article 12 of the Constitution of Cali-fornia' contains the following provisions : "Each sto-ck-' holder of a corporation * * * shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation * * *." 'This provision of the Constitution has been frequently construed by the Supreme Court of that State, and the construction by that court of the language quoted is, of course, 'binding on us. A number of the earlier cases in that State are cited in the case, of Chambers v. Farnham,.
ARK.] PEPPERS V. PENNSYLVANIA DOOR & SASH Co. 525 182 Cal. 191, 187 P. 732. It is the consistent holding of these cases that astockholder is primarily liable ;. and that a creditor is mot required to first pursne the .corpOration before bringing suit against the stockholder. -• See also Thóracth v. Matthicssen, 23 . 2 U. S. 221, 34 S. Ct. 312; Lanigan v. North, 69 Ark. 62, 63,S. W. 62. ' • In the case of .WesterA Pacific Ry. Co. ,v. Godfrey, 166 Calif Ornia 346, the plaintiff had.inade a deposit in a bank , which failed. _A-receiver was appointed, who took charge of the assets and affairs of the bank,. and, while the reCeivership was pending and unsettled, the depositor brought suit against a stockholder in the bank to enforce the proportionate liability of the stockholder under . the Constitution of that State. It Was held in that case (to quote a syllabus) that "the •pendency of receiVership proceedings against an insolvent banking corporation does not affect the right of its creditors -to proceed against its stockholders in the enforcement of their stock, holdees liability." In the case of Thomas v.. Matthiessen, supra, Mr. Justice Holmes,,in construing the prbvision of the Cali-fornia Constitution quoted and the section of the Civil Code relating theretb, said: "This Means that, by forCe Of the statute, if the corporation incUrs a debt within the jurisdiction, the stockholder is a party to it and joins in the contract in ; the proportion of his shares." • It is insiSted that the provisions Of the California COnstitution and of the Civil Code of that State.dittribt apply to the demand here asserted, for the , reason that this is an adtion to recover unliquidated damages for the breaCh of a contract, the insistence being iliat the stock-holdees liability is limited to, acti6ns for debt and dees not extend to actions for UnliqUidated daniages for breach of a contract. We think counsel are mistaken in this contention. The case of Chambers v. Farnham, supra, was a suit in which the plaintiff claimed , damages against a corporation in which the defendant Was a Stodkholder by reason of an alleged brea . ch _ pf a . covenant contained in a lease
526 PEPPERS V. PENNSYLVANIA DOOR & SASH Co. [171 to certain land for farming PurpOses delivered by the corporation to the plaintiff: It was insisted, and the coUrt held, that the suit to enforce the stockholder's liability had not been cominenced . within : the - time prescribed by the Code . of Civil Procedure of that State. But, while the Cause of action sued on (a claim . for damages) was . held to be barred :gy the statute 'of limitations, the opinion distinctly -recognized the right to maintain a : suit of that character. In the Opinion by Chief Justice Angelotti it •was said: "The liabil/ity Of 'the corporation to respond in damages for any failure to perform the covenants contained in it8 contract was necessarily created or incurred by the execution of the contract, net-withstanding that no right of action could accrue •uail aIreach,": It was there also said-: "As 'said in Coulter Dry Goods Co. v. Wentworth, supra (see 171 Cal. 510,153 Pac...493), when the corporation made its contract with the plaintiffs, it inclirred a liability for any breach of the contract which it might commit, and its stockholders were equally liable for . such breach. 'The stockholders who . were such when the contraet Was made are therefore bound Under the Constitution, whiCh holds them for the 'liability' inCurred -by the corporation during the time that they were stockholdera."' • - - It ia also' insisted : that the teStimony: did not Show the amount of the- capital stock oWned by- Peppera, and fir this reason the . judgment against him Was eXcessive. There: was offered 'in evidence a • certified dopy of. the articles • of incorporation of ; the 'lumber' companY, fiora which it appeared that the capital . stock of that company was $1,000,000; and in the Seventh sectien of these attieles it was recited that the amount of said capital stock which had been actually subscribed is $5, and the names of the five subscribers were given, each for one share of . stock at- $1. -It appears, however, that the comPlaint cOntained the following allegation: "Plaintiff further alleges that the defendant T. H. Peppers was a large stockholder in the Peppers-Cotton Lumber Company at the time the
ARK.] PEPPERS V. PENNSYLVANIA DOOR & SASH .CO. 527 • transactions complained of occurred, holding . $400,000. par value of its. stock, and the total subscribed stock of said corporation was $600,000." , - • . . The . Answer admitted that the lumber. company' had been declared a bankrupt, and denied that• appellant owned any stock•therein in any amount, but did not "deny that the total. subscribed stock. of .the 'lumber .cOrnpany at the time of .the transaction:between the parties to the suit was $600,000. , The undenied allegationithat the capi.4 tal stock was $600,000 is . conclusive , of that queStion: Besides, :the • undisputed. testimony shows . that- the :lumber company was in the possession . of assets of very great value, which could not, of course, have been .acquired with $5 of capital. Moreover, the deposition. of C. A. Cotton, who was a vice-president and' active manager of the lumber . company, , was taken, and introduced , at • the trial. Cotton testified.that, after the. charter, was . issued, Peppers owned $300,000 of the capital stock, and that:he later bought frOm his father $100,000 of the stOck'whióh had . been issued to Peppers': father. The' testimony of Cotton) who testified • that Peppers had. himself stated -to witness the . amount of stock owned by Peppers,' placed the ownership. Ofall this-stock as of the 6th,. 7th or 8th of September, • 1921, which Was -the year during .which 'the contract:was to be 'performed. . • . ••• • Appellant insists .that. this testimony 'was :not: com, petent to prove .the amount of stock owned.by Peppers, as . that fact could.be shown only by the stock-book of the lumber company. .• „ The case of Sliean v. Cook,. 180 . Cal. 92;479- P.:185,- is against this contention, it being there : held that. it is the actual, and not the ostensible, owner- of the stock who!is liable. In the case just cited the first, syllabus reads : "A stockholder of a. corporation, within ,: the :meaning. of article 12, § 3, of -the Constitution, declaring :stockholders liability, •is one who owns 'shares . in a corporation which has a capital:stock, being so defined in.§ . 298 of the Civil Code, which was in effect at the time of.theadoption. of the constitutional provision, and the tegislatUre, in•
528 PEPPERS V. PENNSYLVANIA DOOR & SASH CO. [171 providing in § 322 of the Civ4 Code that the terni 'stockholder' applies not only to such persOn as appears upon the books of the corporation to be such, but alsO to-every equitable ' owner of stock, although the -same appears on the 'books in the name of another -* * .*." • ' We . cenclude therefOre that the jury was warranted in .finding that appellant owned, not one share, but $400,000 of the Capital Stock, which was $600,000, and Was therefore liable for two-thirds of the damages whiCh apPellee was ShOwn tO have sUstained. . 'It is finally insisted for the reversal of the judgthent Of the Court below that the testinioni does not sustain the 'verdict for the•amount of damages assessed.:hY the jury. , • The luinber companY cOntracted to deliver to apPel- lee "the entire , cut Of luinber two shop and better, White and SUgar . pine for the season 1921, estimated at six milliOn , feet." Mr. Cotton, who, as , we have Said, was a Vied T preSident • and 'actiye manager , of the luinber cora: pany,. testified cOncerning the output of the Mill, and hiS testimeny ful1 Supports the finding that the output Would halie.eqUaled 'or exceeded the estimate containted in the contract if the lUmber company had . operated the mill aS it had 'contracted tO do. The testimony on the part of appellee showed'a rapid rise in the . price of lumber; and, according to the testimony offered on behalf *of appellee in this respect, a losS of $80,000 • was sustained by the non-delivery of the lumber.This . is a much larger sum than was fonnd by the jurY-, the verdict returned being for the, sum of $25,012. At any rate, we think the testimony supports- the findin. for the damages returned... , . . • Error was assigned in submitting tO the jnry aS an , element of damages certain loading charges; but there was no error in this, as the , contract, after stating the prices to be paid, specifies the "prices f. o. b. cars, Macdoel, California, net." If appellee was compelled to incur an expense which the contract reqUired the lunaL ber conipany to discharge, the payment of this expense
mut.] 629 was a proper element of damage to be considered by the jury. -- , - - - What we have just said about loading lumber is equally applicable to the assignment of error in retard to surfacing certain portions of the lumber. The contract gave appellee the right to direct that certain parts of the lumber be surfaced by the lumber compahy, far which an additional price of $5 per thousand was to be paid. This service was not performed by the lumber company, ;but was done by appellee at ä necessary cost to it of more than $5 per thousand. This excess was therefore also a recoverable element of damage. • ' • . Upon a cdnsideration of the whole recdrd . we find no reversible' error, and'the judgment of the court below is affirmed.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.